Rio Tinto to become world’s largest iron ore exporter, time to buy shares?

Huge mining company Rio Tinto Limited (ASX: RIO) is about to become the world’s biggest iron ore exporter according to reporting in the Australian Financial Review.

Looking back at Rio Tinto’s June 2019 quarter report that was released a week ago, Rio Tinto shipped 85.4 million tonnes of iron ore and produced 79.7 million tonnes in the three months. So, even though Rio Tinto’s production reduced by 7% compared to the second quarter of 2018, it has still become the largest producer.

Large Brazilian iron ore miner Vale only produced 64.05 million tonnes in the June quarter and shipped 61.9 million tonnes.

Part of Vale’s fall in production was because of a dam failure, which took 90 million tonnes of yearly production capacity out of service. However, rain was also supposedly an issue for Vale’s production numbers.

The combined expectations that four of the world’s largest iron ore miners – Rio Tinto, Vale, BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) – will all report lower exports this year has helped the iron ore price perform so well.

The two main things that could cause a reverse of the iron ore price is if Chinese demand softens and if Vale production comes back up to full speed, but no-one knows exactly when that will be.

The Australian Financial Review quoted Vale, “Vale expects that 30 million tonnes per year of dry processing production will be gradually resumed starting by the end of this year and the remaining 30 million tonnes per year, which includes wet processing is estimated to return in about two to three years”.

Foolish takeaway

Rio Tinto is generating excellent cashflow at the moment, however it’s very hard to say how long it can last. Cycles do turn and I think it would be unwise to invest in resource businesses at the top of the cycle.
Source: Motley Fool